Strategic Analysis of Lidl's International Market Expansion Options

This report presents a strategic analysis of Lidl's potential international expansion, focusing on a comparative study between Mexico and Norway. The analysis employs the PESTEL framework to evaluate the political, economic, social, technological, environmental, and legal factors of each country, aiming to identify the more suitable market for Lidl's expansion. The report then justifies the selection of Mexico, highlighting its economic strengths and larger market size, while acknowledging the challenges related to law and order and wealth distribution. A five forces analysis assesses the competitive landscape of the Mexican retail market, examining competitive rivalry, the bargaining power of buyers and suppliers, and the threats of new entries and substitutes. Furthermore, the internal environment of Lidl is evaluated using the VRIO framework, assessing the value, rarity, imitability, and organization of its resources and capabilities. Finally, the report explores various market entry strategies and recommends the most appropriate form of market entry for Lidl, providing a comprehensive overview of the strategic considerations for the company's international growth.

Running head: MANAGEMENT
Management
Name of the Student
Name of the University
Author Note

1MANAGEMENT
The increasing intensity of the business competition is seen to be one of the major
concerns for the modern business organizations. Majority of the established business
organizations are facing an intense level of the competition and the increasing entry of the
new organizations is considered to be one of the prime reason for the increment of the
business competition. With a precise consideration towards the concept of the globalization,
it is evident that the companies are trying their level best for acquiring increased number of
the customers and under such situation, the idea of the business expansions and entry into the
new regions for improved business operations is a significant idea for the companies
(Dunning 2014). Hence the paper is focused in testing the feasibility of the idea of business
expansion of one of the German supermarket chain named as Lidl. The paper includes a
comparative analysis of Mexico and Norway on the basis of the PESTEL analysis. Along
with that, the paper identifies the preferred market for the company on the basis of the
findings of the PESTEL analysis. In addition to this, the paper provides significant
information regarding the competitive environment of the chosen market and along with that,
it also discusses regarding the resources and the capabilities of the company that will be
crucial in entering the market with the application of the VRIO framework. Along with that,
the paper analyses the significance of various forms of market entry and identifies the most
suitable form of market entry for the company.
Task 2: Justification for the selected country
With a precise focus on the findings of the PESTEL analysis, it is evident that Mexico
will be the most suitable destination for the mentioned company. One of the main
competitive advantage for Mexico is the significant strength of the economy of the company.
For the establishment of any sustainable business, it becomes important for the managers of
the organizations to make sure that they enter a market that has the capability to contribute in
the growth of the company (Bocken et al. 2014). Under such situation, Mexico is one of the

2MANAGEMENT
most preferred destinations for the companies across the world. In comparison to Norway,
Mexico is seen to have a better Gross Domestic Product and that is evident with 1150.89
billion US dollars worth of GDP in the year 2017 of the nation (Tradingeconomics.com.
2019) whereas Norway’s GDP is seen to have a worth of 398.83 billion US dollars
(Tradingeconomics.com. 2019). Along with that, the GDP of Mexico is seen to be
approximately 1.86 percent of the global economy (Tradingeconomics.com. 2019) whereas
Norway’s GDP is 0.64 of the global economy in the year 2017 (Tradingeconomics.com.
2019). Hence it is evident that the contribution of the Mexico in the global economy is almost
twice the amount of Norway. It is visible that Mexico has the capability to provide the much
required market and the growth that the company requires for establishing a profitable and
sustainable business.
However, it is evident that Mexico has considerable amount of challenges in the
effective management of the law and order inside the country which has the potential to
create considerable amount of challenges for the companies in conducting their general
business operations. Along with that, a high Gini co- efficient of 49.8 signifies the fact that
the country is affected with the unequal distribution of the wealth (Data.worldbank.org.
2019). Under such situation, Norway has a low Gini Co- efficient of 27.5 in the year 2015
which shows that the distribution of the wealth amongst the citizens of the country is majorly
equal (Tradingeconomics.com. 2019). Other than this, both the countries show high Hunan
Development Index which clearly portrays the excellent quality of the life style of the people
of the nation.
On the other hand, the population of Mexico is seen to be 132,280,845 in the year
2019 (Worldpopulationreview.com. 2019) whereas Norway’s population is approximately
5399490 (Tradingeconomics.com. 2019). From the statistics of the population, it is evident
that Mexico provides a larger number of the customers for the mentioned company in

3MANAGEMENT
comparison to Norway. Considering the technological aspect, it is visible that, citizens of
both the countries have significant amount of expertise in handing the technological
advancements. Apart from this, the political context of Mexico is a major concern for the
country, where Norway has significant amount of advantage. With a precise focus on the
recent history of the criminal offences, Mexico is seen to improve a bit, however, that is far
from being capable of gaining the trust of the multinational organizations. Both the counties
are seen to be notably concerned regarding the environmental or the ecological balance and
that becomes pretty evident with the formation of the environmental legislations from the part
of the government. Considering the legislative framework of the countries and the
legislations, it is evident that the significantly strong bond of Mexico along with other nations
of World Trade Organizations provides the base for the country in attracting the multinational
organizations for conducting a sustainable business in the nation (Wto.org. 2019). On the
other hand, Norway is seen to be one of the main member of the European Free Trade
Association and is eminent part of the European Union (Efta.int. 2019). Along with that, the
government of Norway is seen to be focused in maintaining the liberal trade and investment
regime with all sorts of industrial products (Ec.europa.eu. 2019).
While majority of the aspects are similar between the mentioned countries, Mexico
provides the better chances to the company for the achievement of the desired growth and the
success in conducting a stable business.
Task 3: Five forces analysis
Competitive Rivalry: High
Considering the competitive framework of the retail business of the mentioned
country, it is evident that the market of Mexico is notably populated by a series of companies
such as Walmex, Organización Soriana, H-E-B and Comercial Mexicana (Walmex.mx/en

4MANAGEMENT
2019). With a precise focus on the business activities of the mentioned companies, it is
understandable that the retail market of the country is facing an intense level of competition.
All the mentioned companies are seen to hold a significant amount of market share and the
diversified product range of the companies is seen to be the main factor that is enabling the
companies in the achievement of a larger number of customers. The significant growth of the
retail market of Mexico is one of the main trigger for these companies and along with that,
the increasing business operations of these companies provide significant amount of
information regarding the possible growth of the companies. One of the common trend in the
retail market of Mexico is seen to be the increased focus of the companies on the increment
of the product chain and along with that, the senior management of the companies are seen to
put strong emphasis on the customer relationship management which is pretty evident with
the increased preferences of the companies towards the usage of the technology in the
business management.
Bargaining Power of the Buyers: High
With a precise focus on the current retail market of the selected country, it is visible
that the companies are able to focus on the customer retention strategies. Majority of the
companies are seen to prefer the low pricing policies which is playing a significant role in
increasing the intensity of the price based competition in the industry. In addition to this, the
companies are seen to prefer the application of the customization aspect and that is evident
with the design of the products. Almost each of the mentioned companies are seen to have
significantly efficient customer relationship management system which helps the companies
in the identification of the varying preferences of the customers. Considering the intense level
of competition in the market, the intention of the companies in designing their products or
services in accordance to the preferences of the customers is seen to be pretty prominent and
under such situation, the improved functionality of the CRM is of great significance

5MANAGEMENT
(Khodakarami and Chan 2014). Hence, it is evident that the customers of the region are
subjected to increased number of offerings from the part of the various companies which
enables them to have a high bargaining power.
Bargaining Power of the Suppliers: Low
With a precise focus on the functionality of the suppliers in the region, it is evident
that Mexican retail market is populated by considerable number of eminent suppliers from
different sectors such as the food and beverages, clothing along with luxury goods. The
suppliers have the quality of providing on time supply and accurate amount of supply. Along
with that, the suppliers in the region are seen to provide the material at a significantly
reasonable prices which helps the companies in the application of the low pricing. Majority
of the suppliers have the specialty of following the suppliers’ code of conduct and abiding by
the relevant legislations for the ethical and eco- friendly sourcing of the raw materials. Other
than this, several suppliers of the region are observed to offer significant amount of discounts
in the bulk purchases.
Threat of new entries: Moderate
With a precise focus on the growth of the Mexican retail market, it is pretty visible
that a series of new companies are considering business opening for achieving a significant
growth in their business. However, the shareholders of majority of the new organizations are
seen to be significantly concerned with the requirement of the bulk amount of monetary
investment for the infrastructural development (Ismail 2014). Along with that, the complexity
of the trade licensing procedure in the nation is considered to be one of the main obstacle for
majority of the new organizations. Hence, it is evident that the company will face moderate
level of threat from the new entries.
Threat of Substitutes: High

6MANAGEMENT
From the analysis of the competitive rivalry, it is evident that the Mexican retail
market includes considerable number of established retail supermarket chains. Along with
that, all of the mentioned supermarket chains have the expertise of applying low pricing
policies for their products and services. Apart from this, the companies have the capability to
design their products in accordance to the specifications of the customers. Under such
situation, the selected company is expected to face significant amount of threat of getting
substituted by other organizations.

Running head: MANAGEMENT
Task 4: Internal Environment (VRIO Framework)
Aspects Descriptions VRIO
Framework
Products The diversified product chain of the company has significant amount of potential in meeting the diverse needs of the employees in an
efficient manner. The company has the expertise of selling optimum quality fast moving consumer goods for the customers. The
significant variety in the different product categories of the organization on the basis of the flavour and quantity is observed to be
significantly helpful for the company in meeting the diverse product requirements of the company. Along with this, the increased
consideration of the manufacturing department of the organization towards the customer inputs regarding the inclusion of the new
products available through the efficient CRM system of the company, is seen to be an important factor that is influencing the
company in the increment of the product chain of it (Lidl.com. 2019). Hence the diversified product offerings of the company can be
considered as one of the crucial aspect of the company’s business that has the capability to provide significant amount of competitive
advantage to the chosen organization.
Valuable.
Pricing Policy
and Financial
Strength
With a precise focus on the company’s current business policy, it is understandable that the company operates as an efficient
discount store across the globe. The company currently has their representation in more than 10000 locations across the various
countries of the Europe (Lidl.com. 2019). The significant reach of the company helps it to serve a larger number of customers in an
efficient manner and along with that, the application of the low pricing in comparison of the typical markets help it in gaining the
preferences of the customers in an effortless manner. The strong cash flow inside the organization along with the significant amount
of monetary funding from the part of the parent company, Schwarz Gruppe, has enabled the company in the application of the low
pricing policy which helps the company in achieving increased sales of their products (Lidl.com. 2019). The efficient cash flow is
one of the major concern for majority of the companies operating in the retail market and under such situation, the substantial
support of the parent company of the organization provides significant amount of competitive advantage in serving larger number of
customers.
Rare
Training and
Development
The senior management of the company is seen to have a tendency of investing considerable amount of funds for conducting the
training and developmental activities or the employees of the company. Considering the increasing intensity of the competition in the
retail market of Mexico, it is evident that the capability of the employees in providing the desired quality in their services is essential
Organized

1MANAGEMENT
for achieving the much required customer satisfaction and for the formation of the customer loyalty. Hence, it becomes important for
the companies to improve the quality of the services of their employees. The financial support from the part of the parent company of
the organization has enabled the company in conducting increased number of training and developmental sessions for the
improvement of the skills and competencies of the employees. These sessions played significant role in increasing the overall
performances of the company.

Running head: MANAGEMENT
Task 5: Modes of Market Entry
The modern business market is seen to have ample number of practical examples of
the business expansions and under such situation, the importance of various modes of market
entry is seen to increase in a significant manner. Though there are various forms of market
entry depending on the strategic choices of the companies, however, the most suitable modes
of market entries are observed to be mergers, acquisitions and the joint ventures. These
modes of market entries are used by the companies in the most prominent manner.
The merger is considered to be a voluntary fusion of two existing organizations on
equal terms for the formation of one single legal entity. Phillips and Zhdanov (2013)
commented that the firms that have the interest to take part in the mergers are majorly equal
in terms of the scale of operations, size along with the customer base. Ferris, Jayaraman and
Sabherwal (2013) highlighted that the main objective of the companies in forming the
mergers are to gain the increased market share, reduction in the cost of the operations,
expansion into new territories along with the increment of the profits and revenues for the
company. On the other hand, the acquisition is a mode of market entry in which a company
purchases a section or all the shares of another company for achieving the control of that
particular company. Phillips and Zhdanov (2013) highlighted an important fact related to the
concept of the acquisition with the claim that if a company purchases 50% or more of the
overall shares and assets of another company then it allows the buyer company to achieve the
authority for the decision making regarding the usage of the newly acquired assets of the
company without the approval of the target company’s shareholders. Hence it is pretty
evident that the acquisition can take place for a particular company with or without the
approval of the other minority shareholders of the company. However, Joint venture is a

1MANAGEMENT
completely different business context altogether. From the concept of the Joint Venture, it is
understandable that the joint venture is a form of business arrangement that is usually
formulated with the participation of two or more business companies coming together with
the diversified resources of the company for the accomplishment of a common goal (López-
Duarte and Vidal-Suárez 2013). In case of the joint ventures, all the companies are
responsible for bearing the costs associated with execution of the project, losses along with
the profits generated out of the projects. Other than this, the broad concept of merger is seen
to be divided into various other forms such as the Conglomerate, Congeneric, Market
Extension, Horizontal and Vertical (Ferris, Jayaraman and Sabherwal 2013).
With a precise focus on the discussion regarding the various aspects of the Mexican
retail market along with the internal resources and capabilities of the selected company, the
most preferred mode of market entry for Lidl will be Joint Venture. The company is in need
to form business tie up with one of the existing super market chains of the region for entering
the Mexican retail market. As mentioned earlier in the Porter’s analysis of the Mexican retail
market, the government of the nation is significantly strict with the procedures of the trade
licenses and majority of the companies face significant amount of difficulty in it. Apart from
this, the foreign companies are seen to be subjected to higher tax rates in the country and that
increases the cost associated with the business operations of the company. Under such
situation, the formation of a joint venture with one of the efficient organizations of the nation
such as Grupo Chedraui or Comercial Mexicana will be significant in eradicating these sorts
of concerns for the company (Grupochedraui.com.mx. 2019).

2MANAGEMENT
References:
Bocken, N.M., Short, S.W., Rana, P. and Evans, S., 2014. A literature and practice review to
develop sustainable business model archetypes. Journal of cleaner production, 65, pp.42-56.
Data.worldbank.org. 2019. GINI index (World Bank estimate) | Data. [online] Available at:
https://data.worldbank.org/indicator/SI.POV.GINI?locations=MX
Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of
the 1990s. Routledge.
Ec.europa.eu. 2019. Norway - Trade - European Commission. [online] Available at:
http://ec.europa.eu/trade/policy/countries-and-regions/countries/norway/
Efta.int. 2019. European Free Trade Association |. [online] Available at:
https://www.efta.int/
Ferris, S.P., Jayaraman, N. and Sabherwal, S., 2013. CEO overconfidence and international
merger and acquisition activity. Journal of Financial and Quantitative Analysis, 48(1),
pp.137-164.
Grupochedraui.com.mx. 2019. Chedraui - inicio. [online] Available at:
http://grupochedraui.com.mx
Ismail, S., 2014. Exponential Organizations: Why new organizations are ten times better,
faster, and cheaper than yours (and what to do about it). Diversion Books.
Khodakarami, F. and Chan, Y.E., 2014. Exploring the role of customer relationship
management (CRM) systems in customer knowledge creation. Information & Management,
51(1), pp.27-42.